Startups try to find sweet spot in grocery delivery

Nature Box Co-Founder Gautam Gupta is photographed in the company's warehouse in San Carlos, Calif. on Friday, March 29, 2013. Nature Box delivers custom snack boxes directly to the homes of customers, allowing people to order snacks online and avoid trips to the store.

Undeterred by spectacular failures like Webvan, a new crop of startups is offering shopping experiences that allow customers to stock their refrigerator without ever setting foot in a supermarket.

Across the Bay Area and beyond, dozens of companies are popping up to offer online grocery shopping and delivery in every imaginable form, from boxes of snacks that are mailed to your home, to a cooler of fruit and vegetables left at your doorstep, to a 40-pound box of chicken you pick up in a parking lot behind a bowling alley.

Despite the death of Webvan, the grocery delivery service that became a totem of the dot-com bust after it collapsed in 2001, as well as disappointing results from Amazon's grocery delivery service and dozens of lackluster efforts from other companies, the appetite among entrepreneurs to solve the challenge of how to deliver groceries appears stronger than ever.

"Nobody's proved how to do this yet," said Lauren Bass, founder of LolaBee's Harvest, an Oakland-based online grocery service that delivers local farm-raised food. "It's a tough nut to crack, but somebody is going to solve this."

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There's still a lot of debate over what works and what doesn't. Is it a good idea to have a warehouse for food storage, or ask the customers to pick up their food? How much should delivery cost? How often and where should online grocery companies deliver?

In the past, the costs associated with delivery service have been so big -- huge warehouses and refrigerators, gas-guzzling trucks traveling door to door, and the waste of wilted produce and spoiled dairy -- and the profit margins so small that the math has never worked out, said Fiona Dias, chief strategy officer at ShopRunner, a Web service that coordinates shipping for retailers.

"They've proven they can get it to you quickly," Dias said. "What they haven't proven is who is going to pay for it. It's economics that's holding this thing back."

This new generation of grocery delivery pioneers say they've studied the mistakes of those who came before and learned that they can't get too big too quickly and can't have too many expensive drivers and truck fleets. They say they can't deliver everywhere and anytime a customer wants, at least when starting out. They aim to be tech-savvy, keep a small footprint and tap into local food suppliers.

And, they say, they need a top-notch website and mobile app, which is why many of the new grocery delivery services were started by engineers in the Bay Area.

"The way to do this is not by actually creating your own warehouses and having a fleet of trucks that you own," said Apoorva Mehta, founder and CEO of Instacart, a San Francisco startup that offers personal shoppers and grocery delivery. Mehta left his engineering job at Amazon to start Instacart out of his apartment.

Instacart doesn't make or store its own food, which keeps costs down. The website has an inventory of all the products from Safeway, Trader Joe's and Whole Foods, and customers fill out their grocery list online. Instacart hires personal shoppers to buy and deliver the groceries, and the customer delivery fees pay Instacart and the driver.

Supermarkets and e-commerce sites have started grocery delivery service in pockets across the country. But some experts say that even national grocery brands such as Safeway haven't been able to grow the business to produce significant revenue, and some speculate that Wal-Mart is losing money on its grocery service in the Bay Area.

For online grocery delivery to work, Dias said, consumers may have to settle for some inconveniences, and it won't just be the fees. If someone else is shopping, packing and delivering their groceries, there's a good chance customers may not get exactly what they want.

"Consumers are picky in terms of the color of their tomatoes," Dias said.

But the jury is still out, and Bay Area companies are trying every angle to make grocery delivery work. LolaBee's delivers large coolers to customers' doorsteps every Thursday, and the company, which started in late 2011, has about 200 regular customers in San Francisco. Good Eggs takes customer orders for farm-grown food and local baked goods and parks a fleet of vans around the Bay Area for customers to pick up their groceries with no delivery cost. It's serving about 1,000 customers a week from Marin County to the Peninsula.

Washington-based Zaycon Foods holds drive-through meat markets across the country to sell beef, chicken, ham, bacon and fish in 20- and 40-pound cases. Customers buy online and wait for the Zaycon truck to come to their city.

Zaycon Foods will hold a meat market in San Jose on Monday and in Antioch and Vacaville on Tuesday.

Other companies say the best model is mailing food to consumers. NatureBox, a startup in San Carlos, sends monthly packages of healthy snacks to customers across the country. The company makes its own line of low-sugar, all-natural foods -- nuts, dried fruit and tortilla chips -- and customers can choose how to fill their boxes with a month's worth of snacks. NatureBox mails to customers in all 50 states -- customer growth is up to 75 percent each month -- and its prices are cheaper than most grocery stores. Without overhead like warehouses and delivery trucks, said co-founder Gautam Gupta, the company is turning profits.

"It's such a savings to both us and the consumer," Gupta said. "That's what's making the model work right."